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P16-1 The stockholders equity section of Martino Inc. at

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P16-1

The stockholders' equity section of Martino Inc. at the beginning of the current year appears below.
Common stock, $10 par value, authorized 1,000,000
shares, 300,000 shares issued and outstanding $3,000,000
Paid-in capital in excess of par 600,000
Retained earnings 570,000
During the current year the following transactions occurred.
1. The company issued to the stockholders 100,000 rights. Ten rights are needed to buy one share of stock at $32. The rights were void after 30 days.
The market price of the stock at this time was $34 per share.
2. The company sold to the public a $200,000, 10% bond issue at 104.
The company also issued with each $100 bond one detachable stock purchase warrant, which provided for the purchase of common stock at $30 per share.
Shortly after issuance, similar bonds without warrants were selling at 96 and the warrants at $8.
3. All but 5,000 of the rights issued in (1) were exercised in 30 days.
4. At the end of the year, 80% of the warrants in (2) had been exercised, and the remaining were outstanding and in good standing.
5. During the current year, the company granted stock options for 10,000 shares of common stock to company executives.
The company using a fair value option pricing model determines that each option is worth $10. The option price is $30.
The options were to expire at year-end and were considered compensation for the current year.
6. All but 1,000 shares related to the stock option plan were exercised by year-end.
The expiration resulted because one of the executives failed to fulfill an obligation related to the employment contract.
Instructions
Prepare general journal entries for the current year to record the transactions listed above.
Prepare the stockholders equity section of the balance sheet at the end of the currient year.
Assume that retained earnings at the end of the current year is $750,000.


CA 17-1

How the following situations should be reported in the financial statement.


Situation 1
Trading securities in the current assets section have a fair value that is $4,200 lower than cost.

Situation 2
A trading securities whose fair value is currently less than cost is transferred to the available-for-sale category.

Situation 3
An available-for-sale securities whose fair value is currently less than cost is classified as noncurrent but is to be reclassified as current.

Situation 4
A company's portfolioof available-for-sale securities consist of the common stock of one company.
At the end of the prior year the fair value of the security was 50% of original cost, and this reduction in market value was reported as an other than temporary impairment.
However, at the end of the current year the fair value of the security had appreciated to twice the original cost.

Situation 5
The company has purchased some convertible debentures that is plans to hold for less than a year.
The fair value of the convertible debentures is $7,700 below its cost.

Instruction
What is the effect upon carrying value and earnings for each of the situation above? Assume these situations are unrelated.
Submitted: 4 years ago.
Category: Homework
Expert:  Neo replied 4 years ago.
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